Sustainability governance structures, stakeholder engagement and ESG performance: UK evidence

Research on firm commitment to sustainability, including ESG disclosure, performance, and accounting, remains relatively underdeveloped. Existing studies largely adopt governance and financial perspectives, consistently identifying corporate governance particularly board-level characteristics as the primary determinant of sustainability commitment. While sustainability, ESG, and climate-related research has grown, scholarship remains heavily focused on traditional governance factors such as board size, independence, and gender diversity. Limited attention has been given to board structural design, sustainability expertise, and leadership roles, as well as how these are operationalised in practice. Furthermore, most studies examine impacts on ESG performance, disclosure, and shareholder value, leaving stakeholder ESG engagement comparatively underexplored.

To fully explore this topic, the thesis examines three research questions that guide the direction of the research. First, the thesis investigates what variables, apart from the traditional corporate governance variables, constitute board sustainability leadership and stakeholder ESG engagement. The result of this is captured in chapter three (3), the first containing the variable definitions and measurements. Second, the thesis assesses the relationship between the board's commitment to sustainability (proxied by a Named Sustainability Director Position - NSDP) and ESG performance, which is captured in the first empirical chapter (Chapter 4). Third, the thesis investigates the relationship between Board Sustainability Leadership (BSLEAD) proxied by a developed board commitment disclosure index and Stakeholder ESG Engagement (STKENG), which is captured in the second empirical chapter (Chapter 5). Employing an integrated theoretical approach, resource-based view, legitimacy and stakeholders’ theories, the thesis employs a panel dataset of 1,334 observations from 166 FTSE non-financial firms from 2016 to 2023 to investigate the relationship between board-level commitment to sustainability (NSDP and BSLEAD) and the presence of a CSO on firms' ESG performance and stakeholder ESG engagement (STKENG).

The findings of the first empirical analysis reveal a statistically positive association between NSDP and firms’ overall ESG performance. This relationship also holds when disaggregating ESG into its individual dimensions, each of which demonstrates a significant positive link with NSDP. To assess the robustness of the model, multiple alternative measures of ESG performance were employed, including alignment with the UN-SDGs, receipt of sustainability awards, emissions performance scores, and climate action (SDG 13). Across all proxies, the relationship between NSDP and ESG performance remained consistently significant and positive. Further analysis using alternative proxies for NSDP including standalone sustainability reporting, ESG assurance, executive remuneration linked to ESG metrics, and alignment with TCFD recommendations consistently demonstrates a positive and statistically significant effect on ESG performance. This chapter makes a novel contribution to the literature by being among the first to empirically examine the relationship between NSDP and ESG outcomes, offering new insights into how the formal integration of sustainability roles at board level influences multiple dimensions of ESG performance. Practically, the findings provide actionable guidance for listed firms and corporate leaders seeking to strengthen governance frameworks and improve ESG practices, disclosures, and performance outcomes.

The results of the second empirical study indicate that BSLEAD exerts a positive influence on stakeholder ESG engagement. Similarly, the presence of a Chief Sustainability Officer (CSO) was found to be positively associated with STKENG. To strengthen the analysis, alternative proxies for STKENG were examined, including ESG-linked remuneration, adoption of ESG assurance services, alignment with UN SDGs, receipt of industry-led sustainability awards, issuance of standalone sustainability reports, and establishment of climate target dates. Each of these measures exhibited a significant and positive relationship with both board sustainability leadership and the presence of a CSO. Moreover, disaggregated analysis across specific stakeholder groups, namely, investors, customers, employees, and suppliers, demonstrated consistent positive associations with BSLEAD and the CSO role. These findings collectively underscore the importance of sustainability leadership mechanisms in enhancing transparency and deepening stakeholder engagement with ESG issues. The empirical chapter offers several contributions. The novelty of this study stems from the unique construct of the composite for BSLEAD (board ESG KPIs, board sustainability committee, director ESG engagement, ESG on skills matrix) as a measure of board ESG governance mechanism, which moves the literature forward beyond climate and traditional corporate governance. Additionally, this novelty is extended by the introduction of a new construct for stakeholder ESG engagement (investors, customers, employees and suppliers) as against disclosure and performance, which has been the traditional and popular dependent variable used in studies examining corporate governance and ESG literature.

This thesis advances corporate governance and sustainability research by introducing novel measures of BSLEAD and stakeholder ESG engagement. It provides new empirical evidence on how board-level ESG governance influences multiple dimensions of sustainability performance, offering important implications for both future research and industry practice.